June 30, 2009 / 3:01 PM / 8 years ago

Canadian economy slips in April

<p>The Toronto Skyline with a condominium building under construction (L) is shown in downtown Toronto, May 14, 2009. REUTERS/ Mike Cassese</p>

OTTAWA (Reuters) - Canada’s economy contracted for the ninth straight month in April as the manufacturing, energy and retail industries scaled back activity in the deepest downturn since the early 1990s.

Gross domestic product by industry fell 0.1 percent in the month compared with March, Statistics Canada said on Tuesday, suggesting the economy is entering its third quarter of recession.

While there were no surprises in the report -- the results were in line with forecasts -- it was still a disappointment to those looking for “green shoots”, or signs the economy is about to right itself.

GDP shrank 3 percent from a year earlier and total output by all industries in dollar terms was the lowest since October 2006.

“The mild drop in April GDP reinforces the point that the worst of the declines for the economy are behind, but we have yet to reach the turning point,” said Doug Porter, deputy chief economist at BMO Capital Markets.

The Canadian dollar was little changed after the data, drawing support from steady global equities. At 9:05 a.m. (1305 GMT), the currency was at C$1.1564 to the U.S. dollar, or 86.48 U.S. cents. Bond prices were largely lower, moving in unison with U.S. treasuries.

CURRENCY RISE DAMPENS PRICES

In a separate report, Statscan said the sharp rise in the Canadian dollar against the U.S. dollar in May caused producer prices to fall by a steeper than expected 1.1 percent from April.

Raw material prices rose 2.2 percent in the same period on rising commodity prices.

The lagged effects of the currency’s appreciation could keep inflation low despite higher prices for oil and other commodities.

“Not only will a higher Canadian dollar help limit gains in headline inflation via import price weakness, but higher commodity prices are also likely to crowd out discretionary spending,” said Derek Holt, an economist at Scotia Capital.

Charmaine Buskas, senior economics strategist at TD Securities said she expects prices at the industrial level to remain lackluster “as the Canadian dollar is poised for further appreciation.”

“But at the raw materials level, continued firmness in crude prices may underpin further price gains for the index,” she said.

Weak foreign demand for Canadian exports led to a 1 percent decline in manufacturing activity in April, with nondurable goods the hardest hit. Mines and petroleum activity fell 0.5 percent and retail trade was down 0.6 percent. The declines were partially offset by strength in the activities of real estate agents and brokers, along with wholesale trade.

The Bank of Canada expects the Canadian economy to shrink 3.5 percent in the second quarter, following a 5.4 percent contraction in the first. The bank will update its projections in July.

Reporting by Louise Egan; editing by Rob Wilson

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